Australia Appropriately formulating a income statement and cash flow table

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G’day Accounting Forums

I’m not sure if this is the place to be making posts of this nature but I’m hoping my problem is almost embarrassingly simple for the majority of this forums regulars.

I’m an MBA student completing a topic in Corporate Finance and attempting to formulate an income statement and cash flow table for a project assessment (Image 1).

I have attempted to formulate the situation correctly (image 2) however I’m not totally confident. I was hoping someone could check my work and let me know if anything jumps out as being particularly nonsensical.

Things I’m particularly uneasy on:

  • The $5 million sales revenue and $5 million COGS deduction cash flows will occur with or without the project taking place. As I understand it the key question in finance is 'will this cash flow occur ONLY if the project is accepted' which makes me think these $5M figures shouldn't be included?
  • Should I adjust the opportunity cost based on the $50,000 difference (between the $500,000 purchase price 6 months ago and the $550,000 current value) for capital gains tax? i.e. $50,000 - (30% * $50,000) = $535,000
  • The wording used in the assignment paper states: 'at the start of production of the new plant there would be a need to invest in working capital equivalent to 10% of incremental revenues'. I took this to mean we are summing the incremental cash flows for the 10 year period and considering 10% of them a capital investment in the first year (as shown), but it could as easily be 10% of the incremental cash flows for each year added the bottom line (Total Cash Flows) individually.

Any help with these issues and anything I’ve done wrong, would be greatly appreciated.

Cheers

Matt
 

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